Dr. Doom predicts RI growth to exceed China

A man who accurately predicted the 2008 financial crisis says that Indonesia could become the world’s fastest growing economy in “the second part of this decade” as it has stronger fundamentals compared to those of China and India.

US economist Nouriel Roubini — nicknamed “Dr. Doom” due to his bearish, but accurate, forecast on the global economy — said that he remained upbeat on Indonesia’s long-term potential, despite worries over the country’s economic slowdown, surging inflation and widening current account deficit.

He noted that Indonesia’s current account deficit — which widened to a historic-high of US$9.8 billion, or 4.4 percent of gross domestic product in the second quarter — should be seen differently as it was driven by booming, productive investments needed for high and sustainable economic growth in the future.

“Countries like India, Brazil, Turkey, South Africa and Ukraine [are also running deficits], but I would not put Indonesia in this group, even if Indonesia has some macro-financial fragility,” he said Saturday in his remarks delivered during the CEO Summit conference held as part of the APEC leaders meetings.

He praised Indonesia’s reforms such as the fuel-price increase and aggressive interest rate hikes, but noted that the country should come up with “ a wide range of economic reforms that were more structural”, rather than just addressing short-term shocks.

“With the right economic reforms, the growth of Indonesia in the second half of this decade could even be higher than China and India,” Roubini predicted.

Indonesia’s economy expanded by 5.8 percent in the second quarter, the country’s slowest in nearly three years, but still the second-fastest after China in the G20 group of major economies.

Roubini noted that, in comparison to China and India, Indonesia was actually doing better than the two countries as it had a more balanced growth model that is less dependent on exports.

Southeast Asia’s largest economy also boasts a more stable government compared to China and India, in addition to having a better demographic structure due to its young workforce that would make a difference in the long-run, he said.

Roubini, who earned his PhD in international economics from Harvard University, made waves during the mid-2000s, when he warned the US over a possible crash in its financial system that could trigger an economic recession. His prophecy eventually unfolded during the 2008 financial crisis, hence, the “Dr. Doom” nickname came about.

The Istanbul-born economist also predicted early this year that the Philippines would get an upgrade in its credit rating to investment grade. The Philippines received an investment-grade rating from Moody’s Investors Service on Thursday, underscoring the rapid growth and political stability that the country — once seen as the “sick man of Asia” — has enjoyed in recent years.

The one-notch upgrade to Baa3 means the Philippines is now rated as investment grade by three of the world’s leading ratings agencies. Fitch Ratings ranked the country as investment grade in March, and Standard & Poor’s followed suit several weeks later.

In relation to countries in the Pacific-Rim, Roubini said that APEC economies were more prepared for the current bout of financial market volatility compared to 1997, when some Asian members fell into crisis that was triggered by exchange rate overshooting and capital outflows.

He noted that the region was now buffered with lower debt levels and stronger foreign exchange reserves, in addition to more regulated financial systems and more flexible exchange rate policies.

Still, the 55-year-old warned APEC members to avoid imposing capital control — a move to entrap foreign capital by imposing taxes on portfolio-related investments or capping transaction volume — which could deter foreign investors and might cause “damaging” economic impact.

“I think most emerging economies have reacted properly — they have tightened monetary policy, but not was now buffered with low debt levels that can kill growth,” he said. “The reaction is stabilization of currency, bonds and equity markets.” (Satria Sambijantoro/The Jakarta Post)